Does Using Cash Lead You To Spend More or Less?

What I learned from two months of living cashlessly.

It all ended a few days ago, when I withdrew $120 from an ATM in the bodega on my corner. Two months of living cashlessly came to a close with that simple act. I plunked a $20 on the counter, bought a $1.50 soda—take that, $5 credit card minimum—and walked away with a sheaf of bills and a couple of quarters jingling in my pocket.

Life has admittedly been easier since then. I ordered without fear at the cash-only German beer hall in my neighborhood. I split a bar tab with friends and, for the first time in a while, didn’t make myself a nuisance.

I previously wrote about my yearning to again feel physical cash in my palms and on my fingertips. But after a short-lived rush I got from yanking those crinkly greenbacks out of the ATM, the excitement dissipated. And I’ve since been reminded how much I detest loose change. Especially nickels and pennies—which, by the way, cost twice as much to mint as they are worth. (I do derive some tactile joy from those big, gold-colored Sacagawea dollars you so rarely encounter, and from the squat, heavy pound coins I’ve used in Britain. There’s something throwback-y in their substantive weight and respectable buying power. I feel like I’m in an 1800s saloon when I purchase a pint by clinking a stack of metal down on an oak bar.)

If there’s one thing I’ve learned in the course of this experiment, it’s that we are millimeters from being able to go cashless as a society. I think we’ll be there within 5 to 10 years—we’ll have figured out how to tip bellhops, for instance, by pointing our phones at their nametags or something. All but the very poorest in developed nations will have cell phones, and those phones will provide seamless methods for transferring money between individuals.

Yes, giant companies will take a bite out of these transfers, and that sucks. We can hope that consumer demand creates cashless technology with lower transaction tolls. On the flip side, though, consider that my ATM withdrawal incurred a $1.50 fee from the bodega and a $2fee from my too-big-to-fail bank. Granted, I could have walked 12 minutes to the nearest no-fee ATM, but I didn’t have time. (Spare me, credit union fanboys and fangirls. I know you’re right, I should make the switch. I will some day. But it’s a hassle, and I’d have to redo all my electronic billing and direct deposit settings.)

One thing I won’t miss if the world goes cashless is abetting tax evasion. I hired a housepainter a while back to spruce up the walls of my apartment, and once the work was done he insisted I pay him in cash—mentioning that he “got hit with a big tax bill last year.” So now I’m complicit in ripping off Uncle Sam, which feels unpatriotic.

David Wolman, author of The End of Money, executed this stunt way before I did and for much longer—a full year of living cashlessly. I called him up to compare notes. He says he encountered daily, silly hassles similar to the ones that tripped me up. He couldn’t buy anything at the farmer’s market. He had trouble paying a babysitter (he couldn’t convince her father to open a PayPal account on the fly). He’d drive around in search of parking meters that accepted credit cards.

The real eye opener came when he traveled to India. “There was just no way to live cashlessly there,” he says, “unless I hired a limo from the airport and then never left my hotel room.” But that sort of thing can change very quickly. Today, it’s food trucks in Brooklyn using Square readers. Tomorrow, it’s streetcart vendors in Mumbai.

To demonstrate how far we’ve come on the path to cashlessness in the developed world, Wolman imagines trying the reverse experiment: living only with cash, and using no credit cards, checks, or electronic payments. “Try paying your mortgage and all your bills in cash every month,” he suggests. “It would shed some light on the hidden hassles and costs of cash. It’s a real time suck.”

Yet despite its inconveniences, cash still has legions of defenders. “We’ve pushed it to the periphery of our experience,” says Wolman. “But if you talk about giving it that final push off the cliff, you get tremendous backlash. People have emotional attachments to these slips of paper and little metal rounds.”

One question I got a lot in the course of my cashless interlude was whether my spending habits changed. Some folks swear by spending only cash because they “feel the pain more” than they do when they swipe a credit card. (Wolman says economists refer to this as “the salience of the form.”) It makes sense that people would want to avoid credit card debt in the simplest manner possible: by limiting their use of credit cards.

But my spending experience was the opposite. Those $20 bills seem to just float themselves away when I’m out on the town, while signing a credit card slip reminds me that I’ve contracted to fulfill a dead serious monetary obligation. I can also keep track of precisely what I’m spending my money on when I use a credit card and can even download that information into a budgeting program like Mint to analyze my outlay. Cash offers no such helpful record. (And let’s not forget those loyalty points. I buy most of my Christmas presents every year with the rewards from my Chase Amazon Visa.)

For now, I’m pleased to have cash back in my life, solely because it makes my daily routine easier. But I won’t miss cash when it’s gone. And I doubt you will, either.